BHMH2101

Financial Accounting

Study Guide Exercise Answers (Chapter 13)

Statement of Cash Flow

TRUE-FALSE QUESTIONS

1. False – Dividends paid belong in the financing section. 

2. False – The purchase of equipment for the manufacturing of inventory belongs in the
Investing section.
3. False - All cash receipts and cash payments not classified as investing or financing activities
are classified as operating activities. 
4. True  
5. False - Under the indirect method, when machinery is sold at a gain, the gain is deducted in
the operating section of the statement of cash flows.

SHORT QUESTION

Polygon Company
Statement of Cash Flows
For the Year Ended 31 December 20X2
　 $ $
Cash flows from operating activities
Profit 309,000
Add: Depreciation expense 181,000
Amortization 40,000
Decrease in accounts receivable 9,000
Decrease in inventory　 32,000
Increase in accounts payable 24,000

Less: Non-operating gain (38,000)

Increase in prepaid expenses　 (12,000)
Decrease in accrued expenses payable (1,000)
　Net cash from operating activities　 544,000
　
　Cash flows from investing activities:
　　 Purchases of PPE (402,000)
　　 Proceeds from sales of PPE 58,000
Net cash used in investing activities: (344,000)
　　 　 　 　
　Cash flows from financing activities:
　　 Payments to settle long-term debts (100,000)
　　 Proceeds from issuing ordinary shares 118,000
　　 Dividends paid 　 (27,000)
　Net cash used in financing activities (9,000)
　Net increase (decrease) in cash and cash equivalents 191,000
　Cash and cash equivalents, beginning of year 72,000
　Cash and cash equivalents, end of year 263,000

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